Bail-Ins and Bailouts
Incentives, Connectivity, and Systemic Stability
Bibliographic Data
| ID | 10171028 |
|---|---|
| Authors | Benjamin Bernard (0000-0002-0333-5493, National Taiwan University), Agostino Capponi (0000-0001-9735-7935, Columbia University), Joseph E Stiglitz (0000-0001-6149-046X, National Bureau of Economic Research) |
| Year | 2022 |
| Volume | 130 |
| Issue | 7 |
| Pages | 1805-1859 |
| Publication date | 2022-03-07 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/719758 |
| OpenAlex | W3140288613 |
| Language | EN |
| References cited | 28 |
This paper endogenizes intervention in financial crises as the strategic negotiation between a regulator and creditors of distressed banks. Incentives for banks to contribute to a voluntary bail-in arise from their exposure to financial contagion. In equilibrium, a bail-in is possible only if the regulator's threat to not bail out insolvent banks is credible. Contrary to models without intervention or with government bailouts only, sparse networks enhance welfare for two main reasons: they improve the credibility of the regulator's no-bailout threat for large shocks, and they reduce free-riding incentives among bail-in contributors when the threat is credible
Bailout · Business · Credibility · Creditor · Economics · Financial crisis · Financial system · Government (linguistics · Incentive · Insolvency · Intervention (counseling · Macroeconomics · Microeconomics · Monetary economics · Negotiation · Regulator · Systemic risk · Banking stability, regulation, efficiency · Economic theories and models · Finance · Housing Market and Economics · Law
| Highly cited | No |
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